KARACHI: The government’s borrowing from banks decreased to Rs2.881 trillion between July 1, 2024 and May 16, 2025, down from Rs6.795 trillion a year earlier, according to the latest data from the State Bank of Pakistan (SBP).
During the period from July to May in FY2025, the government borrowed Rs2.137 trillion from the banking system for budgetary support, a significant decline from the Rs5.657 trillion borrowed during the same period last year.
“The government has reduced its borrowing for budgetary needs by 60 per cent, demonstrating fiscal discipline, and is targeting a primary surplus of 2.1 per cent of GDP for the current year. Additionally, it has repaid Rs648 billion in debt to the State Bank of Pakistan,” said Awais Ashraf, director of research at AKD Securities Limited.
“However, the bulk of the increase in money supply is driven by a rise in cash in circulation, which raises concerns about a potential shift towards undocumented economic activity,” Ashraf added.
Pakistan is set to announce its federal budget for fiscal year 2026 on June 10. Analysts anticipate that this budget will emphasise fiscal consolidation, adhere to International Monetary Fund (IMF) guidelines, and broaden the tax base to include untaxed or low-tax areas. Additionally, the government has committed to continued fiscal consolidation in the FY26 budget to ensure debt sustainability, as agreed with the IMF.
“The government targets a primary surplus of 1.6 per cent of GDP (vs 2-2.1 per cent of GDP in FY25), a surplus for the third consecutive year after two decades. The government has also committed to using any windfall dividend expected from the central bank over and above 1.0 per cent of GDP to retire debt,” said Topline Securities in a report published last week.
According to data from the SBP, while government borrowings from banks are declining, lending to the private sector is on the rise, indicating a growing credit demand from businesses and consumers amid economic recovery and decreasing borrowing costs. Between July 1, 2024 and May 16, 2025, banks provided Rs681.6 billion in loans, compared with Rs277.2 billion during the same period last year. This month, the SBP lowered its benchmark interest rate by 100 bps to 11 per cent, marking the continuation of a series of rate cuts that reduced the rate from a record high of 22 per cent after a brief hold in March. The policy rate has fallen by 11 percentage points since June 2024.